President Ranil Wickremesinghe announced a national policy to rebuild the bankrupt economy of the country to a fully develop country by 2048, at a time when rampant food inflation and chronic shortages are making daily life a battle for millions of citizens. The President announced the plan in his first policy statement since taking office.
Professor Ariyarathna Herath of the Economics and Statistics Department of Peradeniya University addresses the pros and cons on the Interim Budget in an interview with the Daily News.
However, overall Professor Herath sees no fault in the proposed budget. He notes that there are some concessions for economically downtrodden people in this socio-oriented budget.
“For example pregnant mothers, Samurdhi beneficiaries, low-income people, and the loan and interest scale for small scale farmers are given some relief. Likewise the allowance for disabled individuals is also increased,” he said.
He says that what are needed are long-term and medium-term policies to achieve a fully developed country in the future.
“We need a very sharp and concrete medium and long-term strategies and activities. There are a few contradictions. The budget deficit is increased this time. If you compare it with the original budget 2022, it was 8.8 percent out of GDP but this time it is increased to 9.8. The overall budget deficit in number is 2330 billion rupees.
“This is going to be fulfilled by domestic and foreign borrowings since we do not have enough money in the Treasury now. One of the proposals in the budget is to reduce public debt. This is somewhat contradictory. VAT rate too will be increased by 15 percent which leads to the increase in the prices of goods. This discourages consumption. However they expect to bring inflation down to single digits. The Government needs money without printing money. I personally hope that there should be some measures to increase direct taxes like income tax. They have asked all those above 18 should register in the income tax department. It is a good suggestion. We need to increase the tax base,” he expressed.
There is no impact on the cooperate or capital market in the budget proposal. The previous budget mentioned the ‘Capital Gained’ tax. Professor Herath says that this too is omitted from the interim budget 2022.
“A very important fact mentioned by the President is that the railway lines and the railway industry will be used to transport products like vegetables, fruits, flowers and other goods from upcountry to Colombo. We have been proposing this kind of measures before to reduce the transportation costs and post harvesting losses and to reduce traffic. It is timely that the private sector assistance needs to be sought to improve the railway service,” Professor Herath said adding that this will create an efficient supply chain.
“According to my point of view, Sri Lanka to become a fully develop country by 2048 is an unrealistic number of years. We are still 2020s, so this maybe a politically motivated suggestion. This kind of target needs to be proposed if you already have a five or 10 year economic development plan. I do not see a possibility of this target with the proposed budget. This budget runs only for three or four months. We cannot predict anything by this short-term budget,” he pointed out.
Another proposal which is worth a mention is facilitating the expansion of renewable energy. “Phasing out high trade barriers too is important. This will be done in conjunction with the trade adjustment programmes to support workers. We need to promote the export market to earn money while strengthening profitability to the high export revenue,” he said.
Professor Herath says that depoliticising the Central Bank Monitory policies is a must. The Central Bank needs to be independent.
“However there needs to be a link between the Finance Minister, Treasury and the Central Bank. This is because the Government needs to explain the necessities of the budgetary policy which affects the Central Bank Monitory policy. There needs to be cordial discussions for this. Hence, methodical and strategic relationship between these two organisations rather than direct interventions. A lot of misinterpretation and gossip will be created among the public and opposition parties if the situation is otherwise and finally this will reach the international community. The Central Bank has to be given a free hand to control money supply, stabilization of the monetary policy, the price level of the exchange rate, and the domestic price level of the country,” he explained.
Money printing is not necessary. However if an economy is in the recessionary level, money printing can be accepted to some extent because there are so many resources that are unutilized and underutilized. These need to be utilized. Money printing should be done with careful investigation above the inflation,” he said.
According to Professor Herath the interim budget is as a ‘welfare budget with capitalistic tax reforms’.
“On one hand as a Government we continue to reduce our tax income but on the other hand we continue to increase the sides in our public sector subsidies. The reduce of tax to promote the private sector is good but the issue is we do not have money,” Professor Herath concluded adding that this time too he does not see enough increases to collect the income from the interim budget.
Add new comment